Investing in Commercial Real Estate: Multiple Smaller Properties vs. One Larger Asset

One common question commercial property investors often ask is whether it's better to purchase two lower-priced commercial properties or one higher-value property.

The truth is, there's no one-size-fits-all answer – it depends on your specific situation and goals.

Both strategies have pros and cons to consider. Let's compare buying two $750,000 properties versus one $1,500,000 property as an example, keeping in mind that every property is unique.

Two $750,000 Properties:

• Diversifies your portfolio across different geographic areas, reducing location risk.
• Allows you to invest in different asset classes like industrial and retail, spreading economic exposure.
• If you lose one tenant, the other is still paying rent to cover most expenses.
• Lower price points typically mean strata-titled properties with body corporate fees and less control.
• Limited value-add opportunities beyond lease negotiations in strata properties.
• Smaller tenant businesses can be more financially volatile.
• Tenant bonds/guarantees tend to be smaller for these lower-value properties.
• Tenants are often only willing to commit to shorter leases due to uncertainty.
• Higher tenant turnover as small businesses outgrow the space, buy their own premises or close down.
• Typically easier to re-tenant smaller properties due to more businesses of that size seeking space.

One $1,500,000 Property:

• Concentrates your investment in one location and asset class.
• Losing your sole tenant means covering the full mortgage until re-leased.
• Higher price allows freehold ownership, giving more control and value-add potential.
• Opportunities for renovations, developments, multi-tenancy or advertising revenue.
• Larger tenant businesses are generally more financially stable with more employees.
• Tenant bonds and guarantees are usually more substantial.
• Tenants are more likely to commit to longer lease terms due to relocation challenges.
• Lower tenant turnover as larger businesses tend to renew rather than relocate frequently.
• Fewer businesses of this size seeking space can lead to longer vacancy periods.

As you can see, the optimal strategy depends on your specific property, budget, goals and risk tolerance rather than just the price point. Carefully evaluate your priorities when deciding between multiple smaller properties or a single larger asset.